Christine Benz: Hi, I'm Christine Benz from Morningstar. It's tax season, and that means you have until April 15th to fund an IRA for the 2008 tax year. With that in mind, I thought it made sense to sit down with a couple of our most senior analysts to get their perspective on what they think are great picks for funding an IRA.

So here today with me is Scott Burns. Scott is director of exchange-traded fund analysis and editor of Morningstar ETFInvestor. Scott, thanks for joining me.

Scott Burns: Thanks for having me.

Christine Benz: Now, one of your picks I think takes good advantage of the fact that with an IRA you don't have to pay taxes from year to year. So let's start with the Vanguard fund.

Scott Burns: So one of the ETFs that we're recommending for people is the Vanguard Dividend Appreciation Fund VIG. We think, even with all the turbulence in the equity market, people want to stay in equities. But they want to be smart about it.

What we really like about this fund is, one, the dividend and the dividend appreciation that you talked about. And having it in an IRA is a great way to shield yourself from those kind of taxes while getting paid to own it.

But what we really like about the fund is the quality of the names that are in there: 90 percent of the companies that are in there are wide moat or high narrow moat, as determined by our equity analysts.

Christine Benz: So, by that, you mean you think they have sustainable competitive advantages.

Scott Burns: Exactly. Exactly. We're talking about blue chip names, like Procter and Gamble PG, Coca Cola KO, but also some names that people might be a little less familiar with, like Stryker SYK, which is a very competitively advantaged medical device maker, or Illinois Tool Works ITW, which makes everything from the six pack pop ring that you get. A lot of great businesses are in there, and a lot of them that will be able to sustain through any economic cycle.

So, in your portfolio, instead of buying the S&P 500 which is fine; people should have large-cap stock exposure, and we think they should the Vanguard Dividend Appreciation Fund is a slice of the best of the best of that. So it gets you your large-cap exposure, but it does so in a way where it's kind of like pre planned Buffett investing.

Christine Benz: So, even though this fund has a lower dividend yield than the S&P 500, you like it because of its focus on high quality companies?

Scott Burns: Exactly. The S&P 500 has a lot of companies where the dividends might be a little suspect, where the companies don't have the same kind of growth. This is a dividend appreciation fund, and so one of the ways that companies get into this index, which the ETF is based on, is by consistently growing their dividend over the past 15 years. So these are companies that are going to give you growth. So a three percent yield today, over time, will really appreciate and grow.

Christine Benz: So, your other pick I would see as more of a niche sort of fund. It's a commodities oriented fund. It has an unusual strategy. So let's talk about that one. Talk about why you think it makes a good fit within an IRA wrapper.

Scott Burns: Right. So the reason we brought this fund is really just to bring it to people's attention. It's the ELEMENTS CTI S&P Index LSC, or ELEMENTS S&P CTI Index ETN. And the ticker is LSC. And ETFs and ETNs have very creative tickers. So that stands for long short commodity, if you need to remember what it stands for, and that describes the strategy.

This fund uses what's a very academically established persistence of momentum. That is that commodities tend to rise in long cycles and fall in long cycles, because commodities are very related to the economic cycle overall.

We like to describe this fund as a commodity fund with brains. So, in asset allocation, commodities play an important role in terms of helping reduce the volatility in your portfolio. They act as kind of a base. They generally have a zero correlation with stocks, although last year definitely tested that theory.

Christine Benz: Right. Right. And I think that's one thing investors might say. "Well, commodities last year, in a year when I might have hoped for some diversification benefit, really didn't deliver. But this fund behaved differently."

Scott Burns: Right. And I think, one, yes, this fund did behave differently. This fund, because of the momentum factors, actually started shorting commodities in June and July. And so we saw the more common benchmark, the Dow Jones AIG Commodity Index, drop precipitously. This fund actually maintained its flat return across the period. Which, a flat return in 2008 is a great return, actually, in terms of relative performance.

So, over the long run, this fund actually has a negative correlation to stocks, which is better than zero, and has a higher yield than your standard commodity fund. So, again, this isn't something you put 50 percent of your portfolio in. This is something to think about as a smart substitute for your commodity exposure if you're doing asset allocation. That's something that we think about a lot. We think commodities and an asset allocation portfolio do play an important role.

There is a word of warning on, actually, both of these funds, and that is that, with exchange-traded funds and exchange-traded notes, investors have to pay attention to bid-ask spreads, and they have to be cognizant of what the liquidity is around those funds, and make sure that they're using limit orders.

If you're going to buy $100, 000 in one of these funds, you have to be smart about trading it. And if you can't be smart about trading it, then I think a mutual fund, actually, would be a better way for people to go.

Christine Benz: Thanks, Scott. Those all sound like great picks, so I appreciate you providing us the details on them. To research these funds further, or see the other 300 exchange-traded funds currently under coverage, check out Morningstar.com. I'm Christine Benz. Thanks for joining us.